Reality based budgeting approaches and practices

Reality-Based Budgeting

The "Great Recession" that has crippled local economies throughout America has exposed the traditional budgeting procedures used by legislators and municipal leaders as a fallacious exercise in stopgap financing that fails to address the systemic problems of mismanagement, inefficiency, and wasteful spending. As an increasing number of city and state governments struggle to balance their budgets in the wake of curtailed income and overextended expenditures, economists have worked to develop innovate forms of budgeting which are better suited to meet the demands of modern financial planning. The concept of reality-based budgeting has emerged in recent years as a viable alternative to the traditional method of balancing governmental budgets, which is largely predicated on a combination of across the board spending cuts and untargeted increases in tax rates. As Bob Williams wrote in a recent article published by the non-profit organization State Budget Solutions, "reality-based budgeting assumes the rules can change and barriers can move if that is necessary to maximize results for citizens ... prompting governors and legislators to ask four key questions at the start of each legislative session" (Williams, 2013). These four questions are concerned with assessing 1) the state's predetermined goals which must be accomplished, 2) the government's method of measuring is success of failure relative to these goals, 3) the extent of the budget available for outlay, and 4) the most efficient and effective way of satisfying the responsibilities inherent to governmental rule.

With states across the country feeling the pressure of financial shortfalls, examples of reality-based budgeting in practice have become commonplace throughout the governmental planning process. One such example has been established in New York State, where Governor Andrew Cuomo has embraced the innovative, yet pragmatic, budgeting methodology developed to address the nation's mounting debt crisis. According to a recent press release issued by Governor Cuomo on the issue of the state budget, "the financial plan outlined by the Governor is based on the principles of fiscal discipline and reality-based budgeting that do not include using new taxes, fees, or one-shot gimmicks. State agency operations growth is held flat, while local assistance programs grow by 2.6%" (2012). This rejection of the traditional tax-and-spend style of governance is a refreshing departure from the same outmoded practices that precipitated the financial crisis. As Williams states in his article, "reality-based budgeting views all of state government -- all of its agencies and functions -- as a single enterprise ... (because) new proposals are evaluated in the context of all that state government is responsible for doing, and the strategies for achieving the best results are developed with an eye on all of the state's resources" (Williams, 2013). This is undoubtedly the correct approach to mitigating the systemic risk of insolvency created by the excessive borrowing and deficit spending common to state governments. As the press release states, "last year, the Governor brought reality back to the definition of 'deficit' in Albany by eliminating certain automatic inflators and pegging increases in education and Medicaid spending to rational and affordable measures of growth" (Cuomo, 2012), and these actions helped to reduce New York;s financial liability's by billions of dollar, helping to stabilize the state's finances by making targeted cuts designed to improve the government's overall level of efficiency.